Forecasting the currency market by technical analysis consists of a variety of methods. One of them is the candlestick charts analysis. In this article we look at this kind of analysis.
Directly the analysis of candlesticks and philosophy of this method was created in Japan in the XIII century. Its founder was a Japanese rice trader Homma Munehisa from Osaka. He traded on the rice stock exchange and tried to understand the psychology of buyers and sellers. Thanks to the timely warning heralds he received information about the slightest change in price, and thus quickly react to exchange events. This contributed to the fact that he was able to achieve unprecedented results - profit for one hundred consecutive transactions. In order for distinguished service Munehisa was awarded the title of samurai and received the right to be emperor adviser. His portrait can be seen on this picture.
Modern candlestick analysis was available for traders through books and the works of Steve Nison, Gregory Morris, who worked on the study and translation of this method. The main parameters for the analysis are - isolated candles or a combination of them (candlestick patterns). Candlestick patterns reflect the psychology of market participants. An important role in this plays the color of candles, the length of the body, absence / presence of shadows, and the relationships between these elements. Candlestick patterns are very often served good trading signals as the opening and closing deals. For the interpretation of candlestick patterns it is recommended to examine the last candle on the right side of the chart and set its connection with the previous one. If that is not enough, then you need to consider a combination of the following three candles. The best results were achieved while using daily charts candles. For smaller time slots candlestick analysis is ineffective.
This analysis is easy to understand for any trader, and its advantage is that it can be used in collaboration with other analytical tools. Although a beginner trader may have difficulty in recognizing the candlestick patterns, but with time and experience it will no longer be a problem. In order to determine the entry point, it is recommended to combine candlestick analysis with other methods of analysis of financial markets.
As a result of the above in this article, we can conclude that the Japanese candles not only represent a separate type of graphics, but also can serve as one of the methods of forecasting prices in Forex.
You might also be interested in:
- Linear Regression Channel
- Exponential Moving Average
- Accumulation Swing Index
- Forex Fractals Trading Strategy
- How to use MACD Indicator